IT'S OFFICIAL: Americans Have Already Forgotten One Of The Biggest Lessons Of The Financial Crisis

This week,
Gallup released the latest edition of an annual survey asking
Americans what they considered to be the best long-term
investment.

The No. 1 answer? Real estate!

Gallup

This chart doesn't go back that far, sadly, but you can see that
just a few years ago, the percentage of Americans who thought
real estate was the best investment was MUCH lower, a fact
obviously attributable to the trauma of the housing crash.

After the housing crash, numerous pundits predicted that
America's love affair with homeownership would be doomed for good
and that it might take generations for people to be into the idea
of owning real estate again.

Nope.

One problem here is that Americans are wrong: Crash aside, real
estate isn't historically that great of an investment.

Cullen
Roche, who brought the survey to our attention, writes that
the long-term performance of real estate as an investment is
actually quite pathetic:

According to the U.S. Census Bureau Survey of
Construction single family real estate generates a 0.74%
annual return over the last 30 years (this includes multiple
housing booms, mind you, so the data is probably much lower if we
go further back in time). So there appears to be some
recency bias here despite the housing bust.

And this doesn’t even account for many of the miscellaneous costs
involved in real estate. As I’ve shown previously, a house is basically a
depreciating asset that comes with an appreciating piece of land.
But that depreciating asset is extremely expensive over its
lifetime. When you calculate the total costs that go into
maintaining this asset the returns are very likely to be negative
over long periods of time. So that 0.74% figure is probably
higher than you should really expect. In fact, the returns
from stocks and bonds trump real estate by a healthy margin
so Americans have this one totally backwards – the American
Dream isn’t quite the dream we have been sold.

People may have excellent reasons for buyin a home, as opposed to
renting. And right now in many cities, the math indicates
that buying is preferable. But as a long-term investment,
it's wild to see real estate retain its perch as the clear
favorite among Americans.